Horizons ETFs Management (Canada) Inc. and its affiliate, AlphaPro Management Inc., have launched the Horizons Active Floating Rate Senior Loan ETF, a U.S. senior secured floating rate loan ETF alternative to high yield bonds, which will offer some protection from potential rising interest rates.
Class E units and Advisor Class units will begin trading today on the Toronto Stock Exchange.
The ETF seeks to provide a high level of current income by investing primarily in a diversified portfolio of U.S. senior secured floating rate loans, which are generally rated below investment grade (loans rated at or below BB+ by Standard & Poor’s, or a similar rating by a designated rating organization) and debt securities, with capital appreciation as a secondary objective.
It also seeks to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.
Often referred to as bank loans or leveraged loans, secured senior loans are debt instruments where the non-investment grade issuer offers to pay a floating rate of interest, usually the 3-month LIBOR plus an attractive interest rate spread.
Unlike a traditional non-investment grade/high-yield bond, the price of a senior loan is not directly tied to rising interest rates since its floating coupon rate is generally reset every 90 days. A senior loan is also secured against assets of the issuer and generally ranks at the highest levels of the firm’s capital structure, meaning that in the case of a company default, senior loan holders have a first priority to be repaid ahead of other firm debt, and preferred share and common stock holders.
Sub-advised by AlphaFixe, a Quebec-based investment management firm focused on fixed-income investing, the ETF will be actively managed by Sébastien Rhéaume and Diane Favreau with their team.